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Gold Moves Higher as Europe Increases Rescue Funds

Release Date: 
Friday, March 30, 2012

Gold moved higher as the dollar fell to a one-month low as European nations increased funds available to rescue indebted nations. Gold traded at $1663.60 per ounce at 7:08 a.m. Pacific Time on the New York Spot Market with silver at $32.48 per ounce.

Euro-zone finance ministers agreed to temporarily raise the lending capacity of the region's rescue fund to $934 billion. "In the near term, gold prices may be influenced by the effectiveness of the euro zone's plan to bolster their bailout fund," HSBC analysts said in a note. "If the investors deem the plan as sufficient in reducing near-term euro zone liquidity issues, we believe risk assets including gold may benefit."

Ahead of the agreement, Li Ning, an analyst at Shanghai CIFCO Futures, said investors would watch for signs of progress in the euro zone which may strengthen the euro, weaken the dollar and support gold. "We could see gold post gains in April as it is the beginning of the new quarter," the analyst added. Major refinancing deadlines among euro zone nations will occur through April. Today, Spain is expected to announce deep budget cuts on despite popular resistance, adding to concerns that a standoff on austerity measures between Europe's populations and EU leaders threatens to deepen the regional crisis.

HSBC analyst James Steel believes gold is "reasonably attractive," with a limited downside from current levels. He noted a comeback in the gold market since February 29, when the Fed distanced itself from quantitative easing. Since then, the Fed expressed concerned about the strength of the U.S. labor market recovery, increasing expectations of future quantitative easing. Steel expects that central banks may step in as buyers, helping to support the gold market if prices were to move lower.

(Source: "PRECIOUS-Gold climbs as dollar index plumbs one-month low," Reuters, March 30, 2012; "PRECIOUS-Gold hovers around $1,660/oz; euro zone eyed," Reuters, March 30, 2012;

"Gold futures gain ground as dollar slips," MarketWatch, March 30, 2012; "HSBC's Steel Says Gold Is 'Reasonably Attractive,'" Bloomberg, March 29, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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